Euro-Zone Budget Stirs Controversy

In a paper distributed last week to European Union member states and to the European Parliament, European Council president Herman Van Rompuy asked them to consider building a common euro-zone budget in order to give the bloc some centralized “fiscal capacity”. The “issues paper”–a set of guidelines for consideration—read:

For the euro area, the objective is to move towards an integrated budgetary framework. In that context, mechanisms to prevent unsustainable budgetary developments, as well as mechanisms for fiscal solidarity, e.g. via an appropriate fiscal capacity, should be explored. Such mechanisms would be specific to the euro area and therefore not be covered by the Multi-annual Financial Framework.

At a conference organized by the Brussels-based talking shop Friends of Europe on Thursday, Mr Van Rompuy defended this idea and offered some–but not much–more clarity on his thinking, saying that the common pool of euro-zone resources should be used to smooth out the effects of “asymmetric shocks.”